[Click eStock] "GS Geonseol, Strong Housing Sales This Year · Expected Benefits from Company Integration"

Shinyoung Securities Report

[Asia Economy Reporter Minji Lee] Shin Young Securities maintained a buy rating and a target price of 54,000 KRW for GS Engineering & Construction on the 27th. This is based on the expectation of improved performance this year due to enhancements in the housing business sector and the effect of newly consolidated subsidiaries.

In the fourth quarter of last year, GS Engineering & Construction recorded sales and operating profit of 2.6188 trillion KRW and 194.4 billion KRW, respectively, down 7% and 6.1% compared to the same period the previous year. The operating profit fell short of the market expectation of 230 billion KRW. This was due to additional costs of 83 billion KRW and 44 billion KRW incurred in the plant and infrastructure sectors, respectively. Researcher Sera Park of Shin Young Securities said, “Most sites are nearing completion, but in the case of the infrastructure site (Singapore T301 Tunnel), there is a possibility of some cost increases due to delays caused by the prolonged COVID-19 pandemic.”

This year, the company's sales and operating profit are estimated to increase by 14.1% and 21.2% year-on-year to 10.3 trillion KRW and 783 billion KRW, respectively. The higher estimate compared to the company’s sales guidance of 9.5 trillion KRW is because the sales of S&I Construction, which is expected to be newly consolidated under the subsidiary GS E&C S&D, were included. S&I Construction records annual sales in the 1 trillion KRW range and is expected to contribute to the construction and plant sectors. Additionally, sales of overseas modular companies including Danwood and normalization of orders are expected to generate sales of around 800 billion KRW in the new business sector.

Researcher Sera Park explained, “Going forward, growth potential will be highlighted as results from active new business investments such as Vietnam development (recognition of sales from Nabe 1-1 district in 2023), PC factory expansion, and used battery recycling become visible.”

Looking at GS Engineering & Construction’s housing supply plan, 26,880 units were recorded last year, and 27,490 units are scheduled for 2022. Housing sales are expected to rise stepwise from 4.7 trillion KRW in 2020 to 5.3 trillion KRW last year and 5.6 trillion KRW this year. Researcher Park said, “As the proportion of self-developed projects increases, offsetting this, the housing sector is expected to maintain a profit margin in the 20% range,” adding, “The company anticipates steady profit growth in the housing business in 2022, along with the effects of newly consolidated subsidiaries and achievements in new businesses.”